Automated Trading System for Routing and Matching Orders

ABSTRACT

An automated system for matching orders from a virtual trading crowd in an exchange configured for trading securities or derivatives is disclosed including an electronic trade engine operative to receive an order or a quote for a security or derivative at the exchange, the trade engine further operative to disseminate a request for a price message to a plurality of market makers quoting a class in response to receiving the order or the quote, an electronic book in communication with the electronic trade engine, the electronic book operative to store at least one order or quote received by the electronic trade engine, a database including an allocation algorithm, the database in communication with the electronic trade engine, and a trade processor in communication with the database, the trade processor operative to analyze and execute orders or quotes according to the allocation algorithm selected from the database.

CROSS REFERENCE TO RELATED APPLICATIONS

This application claims the benefit of pending U.S. ProvisionalApplication No. 61/107,861, filed Oct. 23, 2008, and is acontinuation-in-part of U.S. application Ser. No. 11/321,065, filed Dec.29, 2005, pending, which is a continuation-in-part of U.S. ApplicationNo. Ser. No. 10/423,201, filed Apr. 24, 2003, pending, and the entiretyof each of the aforementioned applications is incorporated herein byreference.

TECHNICAL FIELD

The present disclosure relates to the trading of securities orderivatives, such as options or futures. More particularly, the presentdisclosure relates to an automated exchange trading system and methodfor routing and matching orders.

BACKGROUND

The introduction of electronic trading mechanisms into exchanges forsecurities and derivatives has been an ongoing process. The desire forimmediacy of order execution and dissemination of information is onereason for the steady substitution to electronic mechanisms. As tradingvolume continues to grow, along with the accompanying need for anincreasingly efficient trading environment, the move toward electronictrading mechanisms is favored.

Electronic exchanges, while efficient and nearly instantaneous, do notnecessarily provide for the routing of orders to a trade engine for a“flash” to the virtual crowd (an electronic, non-floor-based crowd)instead of routing to an away exchange with a more attractive market. Aflash period is an auction period prior to the order linking away toanother exchange. It is desirable for an exchange to provide a mechanismfor the routing of orders to a trade engine for a “flash” to the virtualcrowd instead of routing to a public automated routing (PAR) system forbooking or automatically linking to an away market.

Currently, national best bid or offer (NBBO) rejects, certain “tweeners”and orders that are marketable against away markets route to PAR. Onceon PAR, the orders are represented to the open outcry crowd and, if nottraded by the crowd, are either routed to the book (“tweeners”) or to anaway market. Since manual handling is required on a floor of an exchangefor these orders and multiple orders may arrive at a single floor-basedworkstation, there can be delays between the time the order arrives onthe floor-based workstation (e.g. public automated routing workstation(PAR)) and the time the order is routed, booked or sent away for linkageto an away market. During the time period when an order rests on PAR,there is risk to both the customer and the PAR broker.

BRIEF SUMMARY

In order to address the drawbacks of both traditional open outcryexchanges and electronic exchanges as they pertain to the trading ofnational best bid or offer (NBBO) rejects, certain “tweeners” and ordersthat are marketable against away markets, an automated trading platformand method is disclosed herein routing and matching orders from avirtual trading crowd in an exchange prior to booking the order orautomatically linking the order to an away market.

According to a first aspect of the disclosure, an automated system formatching orders from a virtual trading crowd in an exchange configuredfor trading securities or derivatives is disclosed including anelectronic trade engine operative to receive at least one of an order ora quote for a security or derivative at the exchange, the trade enginefurther operative to disseminate a request for a price message to aplurality of market makers quoting a class in response to receiving theorder or quote, an electronic book in communication with the electronictrade engine, the electronic book operative to store at least one orderor quote received by the electronic trade engine, a database includingan allocation algorithm, the database in communication with theelectronic trade engine, and a trade processor in communication with thedatabase, the trade processor operative to allocate orders or quotesaccording to the allocation algorithm selected from the database.

According to a second aspect of the disclosure, a method for matchingorders or quotes to a virtual trading crowd in an exchange prior toautomatically linking the order to an away market is disclosed, themethod including, receiving an order or quote for a security orderivative at the exchange, wherein the exchange comprises a price forthe security or derivative that differs from a national best bid oroffer price, routing the order or quote to a trade engine, disseminatinga request for price message to a plurality of market makers quoting aclass, receiving at least one response message at the electronic tradeengine, initiating a quote trigger, wherein the quote trigger occurs fora period of N seconds, and allocating at least a portion of the order orquote to at least one market maker according to an allocation algorithm,and allocating a remaining portion of the order or quote, if any, to atleast one predetermined market maker guarantor to execute the remainingportion of the order or quote at the national best bid or offer price.

BRIEF DESCRIPTION OF THE DRAWINGS

For the purpose of facilitating an understanding of the subject mattersought to be protected, there is illustrated in the accompanyingdrawings an embodiment thereof, from an inspection of which, whenconsidered in connection with the following description, the subjectmatter sought to be protected, its construction and operation, and manyof its advantages should be readily understood and appreciated.

FIG. 1 is a diagram of one embodiment of an automated exchange system.

FIG. 2 is a block diagram of one embodiment of the electronic tradingengine of FIG. 1.

FIG. 3 is a flow diagram of one embodiment of a method for providingorder routing to a virtual crowd in an automated trading system.

DETAILED DESCRIPTION OF THE DRAWINGS

A system and method for trading securities, such as securities optionsis described herein. The trading mechanisms and rules described arebased on providing incentives or limitations to particular classes ofindividuals or entities who are involved in trading at an exchange. Forpurposes of this specification, the following definitions will be used:

Broker/dealer—person or entity registered to trade for itself and/or onbehalf of others at the exchange.

Public customer—person or entity, who is not a broker/dealer, trading ontheir own behalf through a broker/dealer or firm registered to trade atthe exchange.

Firm—entity employing persons who represent the firm, or the firm'scustomers, on the exchange, such as market makers, floor brokers,broker/dealers, or other industry professionals.

Market maker—professional trader registered to trade at the exchange whois required to provide liquidity to a market, for example throughstreaming quotes for both a bid and an offer at a particular price.

Designated primary market maker (DPM)—market maker designated by theexchange to be responsible for a fair and orderly market, and to providecontinuous quotes, for a particular class of options.

Virtual crowd—an electronic, non-floor-based crowd.

In-crowd market maker (ICM)—a market maker physically present on thefloor of an exchange.

Non-ICM—any market participant other than an ICM.

Remote market maker (RMM)—a market maker not physically present on thefloor of an exchange.

Market participant—any person or entity that can submit orders or quotesto an exchange.

Class of options—all series of options related to a given underlyingsecurity, where the underlying security may be, for example, publiclytraded stock of a company.

Tweener—Order on a trading system that is represented to the open outcrycrowd and, if not traded by the crowd, which is routed to the book.

Referring to FIG. 1, one embodiment of an exchange system combiningaspects of electronic, screen-based trading with traditional,open-outcry trading suitable for implementing various securities andderivatives trading methods described herein is illustrated. Theexchange system 10 receives order information for the purchase or saleof securities, for example derivatives such as stock options, fromnumerous sources at a central order handling system (OHS) 12. OHS 12 maybe any of a number of data processing systems or platforms capable ofmanaging multiple transactions, as are well known in the art. Forexample, in one embodiment, the order routing system can be implementedon a transaction processing facility (TPF) platform manufactured by IBMCorporation. For purposes of clarity, the examples herein will referspecifically to options. However, it will be appreciated that the systemand methods disclosed herein might be applied to the trading of othertypes of securities and derivatives.

Accordingly, an exchange utilizing the system and methods describedherein may manage a number of classes of derivatives, where each of theplurality of classes of derivatives are associated with an underlyingasset such as a stock, a bond, a note, a future, an exchange tradedfund, an index, a commodity or other known asset types.

Information, such as orders may be entered into the OHS 12 from remotemember firm systems 14 (including remote market makers 18) and/or otherexchange systems 16. The member firm systems 14 and other exchangesystems 16 may be located remotely from the geographical location of theexchange and use any of a number of standard landline or wirelesscommunication networks to direct orders electronically to the OHS 12.The member firm systems 14 and other exchange systems 16 communicatewith one of several interfaces or protocols for transmitting theirorders to the OHS 12. Examples of suitable interfaces are those using adistributed object interface based on the Common Object Request BrokerArchitecture (CORBA) standard and available from the Object ManagementGroup. Interfaces such as financial information exchange (FIX), which isa message-based protocol implemented over TCP/IP available from FIXProtocol, Ltd., or other known securities transaction communicationprotocols are also suitable protocols. Potential destinations for theseorders are the OHS 12 or the electronic trade engine 24 in communicationwith the OHS 12.

When a trade is completed, such as a trade that is automaticallyexecuted through the electronic trade engine 24, the fill information issent through the electronic trade engine 24 and OHS 12. OHS 12 passesthe fill information to the member firm systems and to a continuoustrade match (CTM) system 38 which matches the buy side and sell side ofa trade which, in turn, forwards the matched trades to the OptionsClearing Corporation (OCC) 40, a third party organization that willverify that all trades properly clear. The electronic trade engine 24also sends quote and sale update information through an internaldistribution system 42 that will refresh display screens within theexchange system 10 and format the information for submission to a quotedissemination service such as the Options Price Reporting Authority(OPRA) 44.

As illustrated in FIG. 2, an electronic trade engine 24 comprises atrade processor 30 that analyzes and manipulates orders according tomatching rules 32 stored in the database in communication with the tradeprocessor 30, as described in copending U.S. patent application Ser. No.10/423,201, the entirety of which is hereby incorporated by reference.Also included in the electronic trade engine is the electronic book(EBOOK) 34 of orders and quotes with which incoming orders to buy orsell are matched with quotes and orders resting on the EBOOK 34according to the matching rules 32. In an embodiment, upon a match, theelectronic trade engine 24 will mark the matched order or quote with thebroker-specific identifier so that the broker sending the order or quoteinformation can be identified. The electronic trade engine 24 may be astand-alone or distributed computer system. Any of a number of hardwareand software combinations configured to execute the trading methodsdescribed below may be used for the electronic trade engine 24. In oneembodiment, the electronic trade engine 24 may be a server clusterconsisting of servers available from Sun Microsystems, Inc., FujitsuLtd. or other known computer equipment manufacturers. The EBOOK 34portion of the electronic trade engine 24 may be implemented with Oracledatabase software and may reside on one or more of the serverscomprising the electronic trade engine 24. The rules database 32 may beC++ or java-based programming accessible by, or executable by, the tradeprocessor 30.

When a trade is automatically executed through the electronic tradeengine 24, the fill information is sent through the electronic tradeengine 24 and OHS 12. OHS 12 passes the fill information to the memberfirm systems and to a continuous trade match (CTM) system 38 whichmatches the buy side and sell side of a trade which, in turn, forwardsthe matched trades to the Options Clearing Corporation (OCC) 40, a thirdparty organization that will verify that all trades properly clear. Theelectronic trade engine 24 also sends quote and sale update informationthrough an internal distribution system 42 that will refresh displayscreens within the exchange system 10 and format the information forsubmission to a quote dissemination service such as the Options PriceReporting Authority (OPRA) 44.

The exchange system 10 may be configured to incorporate quote triggerfunctionality to permit greater participation in trades. The quotetrigger would automatically be invoked when a new better price isentered so that additional market participants may have a limited timein which to enter quotes at a price matching the new better price andobtain a portion of the order. For example, upon detecting a quote froma market participant at a new best price which would match against anorder on the electronic book from a non-ICM, the electronic trade engine24 will remove the quantity of the resting order that would be tradeableagainst the incoming quote and hold it and the incoming quote for apredetermined period of time. Any desired preset hold period may beused, however in one embodiment it is contemplated that a five secondhold period is used. In other embodiments, the hold period may be fixedanywhere in the range of 0.5-5.0 seconds. After removing the quantity ofthe resting order, the electronic trade engine 24 will treat the removedquantity of resting order as having been sold and disseminate a lastsale market data message so that the OPRA system 44 will indicate thetrade has taken place. The electronic trade engine 24 will update thetop-of-the-market (i.e. update the quote) as though the trade hadimmediately occurred.

During the hold period, any other quotes or orders from marketparticipants that would also be marketable against the original restingorder are gathered and the resting order volume at the current bestprice will be further reduced, if any still remains in the book. At theexpiration of the hold period, the accumulated in-crowd marketparticipant quotes and orders are traded against the resting orders. Ifthe size of the resting order was greater than the size of the sum ofthe market participant quotes and orders, each of the quotes and orderswould execute fully against the resting order. If the size of theresting order is less than the sum of the market participant quotes andorders, the resting order is allocated among the quotes and ordersaccording to the matching algorithms discussed above. The electronictrade engine will then send fill reports of the executed trades to theOHS 12 for distribution to the appropriate source of the quotes ororders involved.

NBBO Rejects

If an incoming order is marketable, but the exchange is not the NBBO,the OHS 12 will utilize routing parameters that permit NBBO rejectorders to route to the electronic trade engine 24 on a class and originbasis. NBBO reject orders that are routed to the electronic trade engine24 will be handled as described below.

Referring now to FIG. 3, a method of providing orders to a virtualtrading crowd in an exchange prior to automatically linking the order toan away market is illustrated. As shown, a marketable order (an orderthat is marketable at an away market) for a security or derivative isreceived at the exchange system 10 (step 100), the exchange system 10having a price for the security or derivative that differs from anational best bid or offer price. The marketable order is routed to thetrade engine 24 (step 120), where a Request for Price (“RFP”) message isdisseminated (“flashing,” as detailed below) to a plurality of remotemarket makers 18 quoting a class (step 130), which as detailed below,can include information such as the starting (and trading) price, aswell as the side and size of the order. At least one of the remotemarket makers 18 responds to the RFP message (step 140) and transmits aresponse message to the electronic trade engine 24 (step 150). Theresponse message, which is a message indicating the remote marketmakers' 18 response to the RFP message, is received at the electronictrade engine 24 (step 160), and a quote trigger is initiated, with thequote trigger occurring for a period of N seconds (step 170).

In accordance with an embodiment, any existing quote locks, quotetriggers or auctions for quotes and offers at the NBBO will end and willbe allocated prior to the start of any “flashing” of NBBO reject ordersto market makers quoting in the class. In one embodiment, “flashing” isaccomplished by transmitting a Request for Price (“RFP”) to the marketmakers quoting in the class. The system 10 may retain a record of allmarket makers quoting at the best price as well as the firm quoteobligation when the RFP is sent. This is referred to as the “flash”phase. In one embodiment, the RFP includes the NBBO price as thestarting (and trading) price, as well as the side and size of the order.The flash phase will last for a period of N second(s), where N may be afixed or variable time period, or until the first RFP response isreceived, whichever is shorter. Typically, the flash phase period is thesame for any flash type described herein. In one embodiment, theN-second period is less than 5 seconds. In other embodiments, it iscontemplated that each flash type (e.g. NBBO reject, Tweener, etc.) maybe assigned a different time period. In yet other embodiments, the timeperiod may be variable based on the current number of market makers inthe quoting class, the number of contracts involved or otherinstantaneous or historical statistic relating to the class of optionsbeing traded.

Unlike other RFPs, the NBBO price is not a starting price for anauction. Instead, the NBBO is typically the price that the order will betraded at even if a quote moves to a better price or an RFP response isreceived at a better price. Essentially, the order is treated as thoughit has been booked at the NBBO price. As with other RFP responses, thesewill not be displayed as part of the disseminated quote. Once the firstresponse is received from a market maker at the appropriate price(either a quote, or an ICM order, also referred to as an I-order or anRFP response) the second phase (the “trigger” phase) will be started.During the trigger phase, a quote trigger will last for N seconds. Inone embodiment, a last sale price will be disseminated immediately.Quotes, I-orders and RFP responses may be included in the quote triggergroup.

In one embodiment, the order will be allocated using a matchingalgorithm, referred to herein as the Capped Ultimate Matching Algorithm(CUMA). In CUMA, the allocation algorithm will typically be configurableby class and/or by auction-type. For example, matching algorithms can beused to allocate an incoming order to participants based on the numberof participants and the order size each participant represents.Furthermore, orders are preferably allocated to the multiple marketparticipants quoting at the same price based on two components: an ‘A’component, or parity factor, and a ‘B’ component, or pro rata/depth ofliquidity factor. The parity factor of the matching algorithm treats asequal all market participants quoting at the relevant best bid or offerat the exchange (BBO). Thus, if there were four market participantsquoting or bidding at the best price, each would be assigned 25 percentfor the parity component of the matching algorithm. Viewed inconjunction with the pro rata factor of the algorithm, the paritycomponent of the algorithm provides incentive to market participants toquote at a better price than their competitors even though they may havea smaller quote size than other market participants quoting at the BBO.

The second component of CUMA rewards those quoting larger sizes at thebest price by providing the market participants a pro rata componentbased on the percentage of the volume of that market participant's quotesize with reference to the sum of the total of all quote sizes at thebest price, with the added feature that certain participants are limitedin the size of their order that will be used to calculate the ‘B’component of the equation. For example, if the disseminated quoterepresents the quotes of market makers x, y, and z who quote for 20, 30,and 50 contracts respectively, then the percentages assigned under thepro rata component are 20% for x, 30% for y, and 50% for z. The finalallocation may then be determined by multiplying the average of the Aand B components by the size of the incoming order available. In oneembodiment, the matching algorithm described above produces thefollowing equation:

${{Participant}^{\prime}s\mspace{14mu} {allocation}} = {{incoming}\mspace{14mu} {order}\mspace{14mu} {size} \times {\quad\left\lbrack \frac{\frac{1}{{nuumber}\mspace{14mu} {of}\mspace{14mu} {participants}} + \frac{{participant}\mspace{14mu} {quote}\mspace{14mu} {size}}{\sum{{participant}\mspace{14mu} {quote}\mspace{14mu} {sizes}}}}{2} \right\rbrack}}$

Thus, for example, where certain participants are limited in the size oftheir order that will be used to calculate the ‘B’ component of theequation, participants such as in-crowd market makers (ICMs) may becapped in this way so that, after other participants have alreadyentered their order or quotes, the ICM cannot inflate the size of itsorder to obtain a greater pro rata weighting (and thus greaterallocation) of the available order.

Additionally, all responses (including quotes, I-orders and RFPresponses) from a single market maker will typically be aggregated forthe purposes of calculating the ‘A’ component of CUMA. A participationfilter may be used by the trading engine to determine which marketparticipants can or cannot participate in the quote trigger. Forexample, the electronic trade engine may be configured to permit allnon-customers to participate in the quote trigger process by recognizinga participant identifier associated with non-customers. In otherimplementations the electronic trade engine may be programmed to onlyallow ICMs to participate in a quote trigger.

If non-customers were included in the quote trigger process based onthis filtering mechanism, an incoming order under the ‘B’ componentcould start the quote trigger after the RFP period is started.Additionally, an incoming ‘B’ component of the order would participatein the quote trigger, rather than trading at the next price. It isanticipated that customers will continue to trade as they do today.

In another embodiment, the order will be allocated using anothermatching algorithm, referred to herein as the Maker-Taker Algorithm.Under the Maker-Taker Algorithm, all trades are divided into two typesof orders: price setter and price taker. Traders who want to buy or sellat a given price place a price setter order, and traders who want tointeract with the bid or offer place a price taker order. Often, theprice setters receive a rebate when their orders are executed, while theprice takers are charged for order execution. There is no customerpriority of orders in connection with this algorithm.

Once the flash phase begins, if a marketable customer order is receivedthat could trade against the flashed order, the orders will tradeagainst each other immediately with any balance routing to theappropriate destination. If a customer order is received during thetrigger phase, it may trade at the next available price or route to theappropriate destination.

If the away market moves during the flash phase and the exchange becomesthe NBBO, the flash phase will end and the order will be automaticallytraded and allocated to the market makers on the quote. If an awaymarket moves to a better price during the flash phase, the flash phasewill end and the order will route for auto-linking to an away exchange.Since market makers may have a firm quote obligation during the N-secondflash phase, if the exchange market makers move quotes such that thereis no longer enough size to fill the incoming order up to the originaldisseminated size, the order will be routed to an away exchangeimmediately using auto-link functionality.

If the flash phase ends and there are no responses, the order willautomatically link away from the exchange to another exchange. In theunlikely circumstance that the order cannot be routed away once it isreceived due to either: (1) a lack of an away market at a better price,or (2) the OHS 12 rejects that order because the away market is nolonger available after the system 10 attempts to send the linkage order,the system 10 will automatically route the order back to the electronictrade engine 24 where it will be filled at the original firm quote priceup to the original firm quote size.

In one embodiment, the order may be filled in one of the following ways:

If there are market makers on the market that can fulfill the firm quoteobligation (the original price and size or better) the order will beassigned to them. Alternatively, if there is more size required tofulfill the firm quote obligation, the order will be assigned to thosequoters who comprised the firm quote at the time the order was received.Since the electronic trade engine 24 will have to keep track of theparticipants that were on the original market, it is contemplated thatan additional mechanism may be required so that the electronic tradeengine 24 does not have to store the information indefinitely.

In one embodiment, a market maker guarantor may be designated to fillorders not fully executed (and therefore have a remaining portion). Sucha designated market maker guarantor assures that there will be an NBBOexecution for the remaining portion of orders from a submitting firmthat are not fully executed after the exposure and allocation periodshave concluded (detailed above). There may be one or more predeterminedmarket maker guarantors and each market maker guarantor may setparameters 33 on their execution guarantees including but not limited toorder size, price, size of a displayed national best bid or offer, whichexchanges are displaying the national best bid or offer, transactioncosts, and a number of increments from an exchange best bid or offer.Market maker guarantors may set only one or any combination of theseparameters 33, which parameters 33 may then be stored in a database ofthe exchange system 10. The market maker guarantor designations 35, i.e.the market makers designated as guarantors, and the parameters 33 set bythe market maker guarantors may both be stored in a guarantor database37 in communication with the trade processor 30, as detailed hereinabove, so that the trade processor 30, in communication with both therules database 32 and the guarantor database 37, can be operative toanalyze and execute orders according to the allocation algorithmselected from the rules database 32 and allocate a remaining portion ofthe order, if any, to at least one predetermined market maker guarantorselected from the guarantor database 37 to execute the remaining portionof the order at the national best bid or offer price.

Preferably, the remaining portion of the order is automaticallyallocated to the market maker guarantor if the remaining portion meetsthe parameters 33 set by the market maker guarantor. A notification maybe sent by the exchange system 10 to the market maker guarantor upon theautomatic allocation of the remaining portion of the order. It is alsocontemplated that, in the event that the remaining portion of the orderexceeds the order size that a market maker guarantor is willing toguarantee, the remaining portion of the order may be divided among morethan one market maker guarantor so that the entire remaining portion maybe executed at the NBBO. Alternatively, it may be desired that, if theremaining portion of the order exceeds the order size that a marketmaker guarantor is willing to guarantee, the remaining portion is notexecuted against the market maker guarantor.

“Tweener” Locks

An incoming order that is between the market at the exchange, but ismarketable against an away market, is commonly referred to as a “tweenerlock.” The “tweener lock” order cannot be booked because it would lockor cross an away market. In one embodiment, the OHS 12 comprises routingparameters to allow tweener locks to route to the electronic tradeengine 24 based on class and origin. Orders that are routed to theelectronic trade engine 24 will typically be handled as described abovefor NBBO rejects, with the exception that there is no firm quoteobligation. Thus, the requirements of the firm quote will typically notbe followed. If there are no responses during the flash phase, the orderwill be automatically linked away. If the order cannot be linked away,it will automatically route back to the electronic trade engine 24 forbooking.

“Tweeners”

An incoming order that is between the market at the exchange and doesnot lock or cross an away market is commonly referred to as a “tweener.”In one embodiment, the OHS 12 comprises parameters used to routetweeners to the electronic trade engine 24 based on class and origincode. Orders that are routed to the electronic trade engine 24 will behandled as described above for NBBO rejects, with the exception thatthere is no firm quote obligation. Thus, the requirements of the firmquote will not be followed. If there are no responses during the flashphase, the order will typically be booked automatically.

Although the system and methods described herein relate to anexclusively electronic, screen-based exchange that does not includefloor based, open-outcry trading, many of the procedures described maybe applied to a system incorporating and involving active participationfrom a trading floor and a screen-based electronic trading crowd. Aswill be appreciated by those of ordinary skill in the art, mechanismsfor providing orders to a virtual trading crowd in an exchange prior tobooking the order or automatically linking the order to an away marketand other features described above may all be modified for applicationto other forms of trading within the purview and scope of the presentinvention. An advantage of the disclosed system and methods is that moretraders at the exchange may have more opportunity to see and compete fororders that are NBBO rejects, tweener locks or tweeners, thus increasingvisibility of orders and the desirability of maintaining a presence atthe exchange.

The matter set forth in the foregoing description and accompanyingdrawings is offered by way of illustration only and not as a limitation.While particular embodiments have been shown and described, it will beapparent to those skilled in the art that changes and modifications maybe made without departing from the broader aspects of applicants'contribution. It is therefore intended that the foregoing detaileddescription be regarded as illustrative rather than limiting, and thatit be understood that it is the following claims, including allequivalents, that are intended to define the scope of this invention.

1-11. (canceled)
 12. A computer implemented method of allocating ordersfor the purchase or sale of securities or derivatives in an exchangeconfigured for trading securities or derivatives, the method comprising:receiving an electronic order for a security or derivative at anelectronic trade engine in a server of the exchange, wherein theexchange comprises a price for the security or derivative different thana national best bid or offer price such that the received order isbetween a market at the exchange, but is marketable against an awaymarket; in response to receiving the electronic order, a trade processorin the trade engine at the exchange flashing the electronic order to aplurality of eligible market participants, wherein the plurality ofeligible participants is less than a total number of market participantsin communication with the electronic trade engine; routing theelectronic order in its entirety to an away market when the tradeprocessor fails to receive a price from at least one eligible marketparticipant for the electronic order that is equal to or better than thenational best bid or offer price within a predetermined period of timeafter flashing the electronic order; if the order cannot be routed away,automatically routing the order to the electronic trade engine forstoring in the electronic book; and when, in response to the flashing ofthe electronic order, an improved price is received at the tradeprocessor from at least one of the plurality of eligible marketparticipants within the predetermined time period, wherein the improvedprice is equal to or better than the national best bid or offer price,the trade processor: matching and allocating at least a portion of theelectronic order at the improved price against each of the eligiblemarket participants from whom the improved price was received, whereinthe improved price is not included as part of a disseminated quote atthe exchange; routing any remaining portion of the electronic order toan electronic book configured for storing orders received by theelectronic trade engine when the exchange price is equal to or betterthan the national best bid or offer price; and routing any remainingportion of the electronic order to an away market when the exchangeprice is worse than the national best bid or offer price.
 13. The methodof claim 12, wherein the trade processor flashing the electronic ordercomprises the trade processor transmitting a request for price message.14. The method of claim 12, wherein the plurality of eligible marketparticipants less than the total number of market participants comprisesmarket makers quoting in a class associated with the securities orderivatives in the received electronic order.
 15. The method of claim13, wherein the request for price message comprises a price equal to thenational best bid or offer price.
 16. The method of claim 15, whereinthe request for price message further comprises an order size.
 17. Themethod of claim 12, wherein the trade processor matching and allocatingat least a portion the electronic order comprises the trade processorallocating the at least a portion according to an allocation algorithm,wherein an order size of each eligible market participant at theimproved price is capped to prevent inflation of an allocated portion ofthe order.
 18. The method of claim 17, wherein the allocation algorithmcomprises a participation component and a pro rata component for eacheligible market participant at the improved price.
 19. A computerimplemented method of allocating orders for the purchase or sale ofsecurities or derivatives in an exchange configured for tradingsecurities or derivatives, the method comprising: receiving anelectronic order for a security or derivative at an electronic tradeengine in a server of the exchange, wherein the received order isbetween a market at the exchange and does not lock or cross an awaymarket; in response to receiving the electronic order, a trade processorin the trade engine at the exchange flashing the electronic order to aplurality of eligible market participants, wherein the plurality ofeligible participants is less than a total number of market participantsin communication with the electronic trade engine; storing theelectronic order in an electronic book when the trade processor fails toreceive a price from at least one eligible market participant for theelectronic order that is equal to or better than the national best bidor offer price within a predetermined period of time after flashing theelectronic order; and when, in response to the flashing of theelectronic order, an improved price is received at the trade processorfrom at least one of the plurality of eligible market participantswithin the predetermined time period, wherein the improved price isequal to or better than the national best bid or offer price, the tradeprocessor: matching and allocating at least a portion of the electronicorder at the improved price against each of the eligible marketparticipants from whom the improved price was received, wherein theimproved price is not included as part of a disseminated quote at theexchange; routing any remaining portion of the electronic order to anelectronic book configured for storing orders received by the electronictrade engine when the exchange price is equal to or better than thenational best bid or offer price; and routing any remaining portion ofthe electronic order to an away market when the exchange price is worsethan the national best bid or offer price.
 20. The method of claim 19,wherein the trade processor flashing the electronic order comprises thetrade processor transmitting a request for price message.
 21. The methodof claim 19, wherein the plurality of eligible market participants lessthan the total number of market participants comprises market makersquoting in a class associated with the securities or derivatives in thereceived electronic order.
 22. The method of claim 20, wherein therequest for price message comprises a price equal to the national bestbid or offer price.
 23. The method of claim 19, wherein the tradeprocessor matching and allocating at least a portion the electronicorder comprises the trade processor allocating the at least a portionaccording to an allocation algorithm, wherein an order size of eacheligible market participant at the improved price is capped to preventinflation of an allocated portion of the order.
 24. The method of claim23, wherein the allocation algorithm comprises a participation componentand a pro rata component for each eligible market participant at theimproved price.
 25. An automated exchange system for the purchase orsale of securities or derivatives in an exchange configured for tradingsecurities or derivatives comprising: an electronic trade enginecomprising at least one server configured for receiving an electronicorder for a security or derivative at an electronic trade engine of theexchange, wherein the exchange comprises a price for the security orderivative different than a national best bid or offer price such thatreceived order is between a market at the exchange, but is marketableagainst an away market; an electronic book configured for storing theincoming orders received by the electronic trade engine when theexchange price is equal to or better than the national best bid or offerprice; a database comprising an allocation algorithm, the database incommunication with the electronic trade engine; a trade processor incommunication with the database and configured to flash the electronicorder to a plurality of eligible market participants, wherein theplurality of eligible participants is less than a total number of marketparticipants in communication with the electronic trade engine; thetrade processor further configured to: route the electronic order in itsentirety to an away market when the trade processor fails to receive aprice from at least one eligible market participant for the electronicorder that is equal to or better than the national best bid or offerprice within a predetermined period of time after flashing theelectronic order; if the order cannot be routed away, automaticallyrouting the order to the electronic trade engine for storing in theelectronic book; when an improved price is received at the tradeprocessor from at least one of the plurality of eligible marketparticipants within the predetermined time period after flashing theelectronic order, wherein the improved price is equal to or better thanthe national best bid or offer price: match and allocate at least aportion of the electronic order at the improved price against each ofthe eligible market participants from whom the improved price wasreceived, wherein the improved price is not included as part of adisseminated quote at the exchange; and route any remaining portion ofthe electronic order to an electronic book configured for storing ordersreceived by the electronic trade engine when the exchange price is equalto or better than the national best bid or offer price; and route anyremaining portion of the electronic order to an away market when theexchange price is worse than the national best bid or offer price. 26.The automated exchange system of claim 25, wherein the trade processoris configured to transmit a request for price message in order to flashthe electronic order.
 27. The automated exchange system of claim 25,wherein the plurality of eligible market participants less than thetotal number of market participants comprises market makers quoting in aclass associated with the securities or derivatives in the receivedelectronic order.
 28. The automated exchange system of claim 26, whereinthe request for price message comprises a price equal to the nationalbest bid or offer price.
 29. The automated exchange system of claim 28,wherein the request for price message further comprises an order size.30. The automated exchange system of claim 25, wherein the tradeprocessor is configured to match and allocate the at least a portionaccording to an allocation algorithm, and wherein the trade processor isconfigured to cap an order size of each eligible market participant atthe improved price to prevent inflation of an allocated portion of theorder.
 31. The automated exchange system of claim 30, wherein theallocation algorithm comprises a participation component and a pro ratacomponent for each eligible market participant at the improved price.